International Tax Laws and Regulations
U.S. laws and regulations dealing with the taxation of nonresident aliens can be complex. Under section 1442 of the Internal Revenue Code, Drexel University is required to withhold tax on most payments made to, or on behalf of, a nonresident alien and to report all such payments, whether taxable or exempt, to the Internal Revenue Service. The types of payments requiring tax withholding and reporting include, but are not limited to:
- Wages, Salary or Compensation
- Scholarships and Fellowships
- Stipends and Living allowances
- Independent contractor and consultant payments
- Prizes and awards
- Honoraria or Guest Speaker Fees
- Certain Travel reimbursements
Nonresident alien payees generally include students, student/employees, non-students, visiting scholars, and independent contractors (e.g., guest speakers, consultants, etc.).
Tax treaties exist between the U.S. and numerous foreign countries that may provide some tax benefits to certain classes of nonresident alien payees. The provisions of these treaties vary widely, and their benefits are not automatic. The existence of a treaty with any given country does not mean that it applies equally to all citizens or residents of that particular country.
There are many factors that affect the application of tax treaties. The Office of Tax Compliance makes the final determination as to the appropriate application of tax treaty benefits.
Failure to complete all required tax treaty forms will result in the maximum amount of tax being withheld from the employee's paycheck. Any excess federal income tax paid prior to the execution of required forms cannot be refunded.
While the Office of Tax Compliance is concerned with tax compliance for payments made to all non-U.S. citizens, we assume that anyone coming to Drexel University is already legally eligible to work in the U.S. The tax compliance and immigration issues are separate and distinct responsibilities here at Drexel University. Students, visiting scholars, consultants and independent contractors without proper work authorization will not be paid, pending a legal resolution of the issues. Generally students who enter the U.S. on an F-1 or J-1 visa are legally permitted to work for the sponsoring institution for up to 20 hours per week. Teachers, researchers, and visiting scholars on a J-1 visa are legally permitted to work for the sponsoring institution full-time for a period of up to two years. Anyone on an H-1B sponsored visa is eligible to work only for the sponsoring employer.
Departments considering hiring a non-U.S citizen for any position should contact the International Students and Scholars Office, the Office of Tax Compliance, and Human Resources for information before making a job offer. If you have any questions concerning visa types, work eligibility, limits on hours, etc, please contact the International Students and Scholars Services (ISSS.)
The Human Resources Department will issue an International Student/Employee Notification Sheet (pink/white/yellow triplicate form) that must be completed by the new employee. The white copy of this form is then submitted to the Office of Tax Compliance so that a record can be created in the Glacier™ system.
Scholarships & Fellowships
Generally, tuition scholarships are not taxable to any student, provided the amount does not exceed tuition, required fees and books.
If you receive a scholarship, fellowship or other financial assistance from Drexel University that exceeds basic tuition and fees, including monthly stipend checks as an Educational Scholarship/Fellowship Recipient (ESFR), you may be subject to federal tax withholding at the rate of 14%. Athletic scholarships that cover room and board are taxable to the recipient. This tax will be charged to your student account and will become part of your total financial obligation to the University.
Prizes and Awards
If a payment is considered to be a prize or award, a 30% rate of tax withholding will apply; also, an income tax treaty exemption is not generally applicable for prizes or awards.
IRS definition of prizes and awards and the criteria under which they would not be taxable
Prizes and awards are amounts received primarily in recognition of religious, charitable, scientific, educational, artistic,
literary, or civic achievement, or are received as the result of entering a contest. A prize or award is taxable to the recipient unless all of the following conditions are met:
- The recipient was selected without any action on his or her part to enter the contest or proceeding,
- The recipient is not required to render substantial future services as a condition to receive the prize or award, and
- The prize or award is transferred by the payer to a governmental unit or Tax-exempt charitable organization as designated by the recipient.
Independent Contractors, Consultants & Guest Speakers
Generally, independent contractors, consultants, and guest speakers are subject to federal income tax withholding at the statutory rate of 30%. Once again, if a tax treaty exists, an independent contractor or guest speaker may be exempt from federal tax. In order to exempt any payments from federal tax, the independent contractor or guest speaker must have an individual taxpayer identification number (ITIN) or a social security number (SSN.)